More bad news for solar: Oversupply havoc

PORTLAND, Ore.—As if the solar panel industry needed more bad news, market watcher Solarbuzz said Monday (Sept. 26) that production cutbacks at leading solar module manufacturers has been insufficient to prevent further inventory buildup, resulting in oversupplies growing into 2012 and likely depressing prices further.

Already casualties of price-erosion include Spectrawatt Inc., a spinoff of Intel Corp., Evergreen Solar Inc. and Solyndra LLC, all of which recently filed for bankruptcy. Many more failures, however, could be imminent through the second half of 2012, when Solarbuzz predicts that demand will finally catch up with supply.

Oversupplies in 2011 have already depressed factory gate prices, which are down 33 percent over 2010, according to the Solarbuzz. The firm estimates that demand in the current quarter is up 20 percent over last year, but just 1 percent over last quarter, portending further market softening that will likely endure through the first half of 2012. Solarbuzz, part of The NPD Group (Port Washington, N.Y.), said European markets have been hardest hit by the slowdown, since most of current growth has been in the U.S. and Chinese markets, with Europe accounting for just 58 percent of global demand compared to 78 percent last year.

Global PV demand falls far short of cell/module inventories which continue to grow due to continued Chinese mass production.

Solarbuzz blames tier-one Chinese manufacturers for the oversupplies, since they have maintained their 2011 shipment guidance volumes despite the global slowdown, resulting in a forecast of 4.4 GWatt of overproduction by the end of the year. These manufacturers were banking on price cuts to stimulate demand in the second half of 2011, but so far that demand has not materialized. And in Europe the situation will only get worse in the fourth quarter of 2011, when crystalline module prices are projected to fall another 18 percent over the current quarter, according to Solarbuzz, which said that gross margins were already down 50 percent in the second quarter of 2011. As a result, Solarbuzz is predicting more consolidations and bankruptcies in 2012.

"Margins are already at a breaking point, thereby increasing the likelihood of more company consolidations and liquidations next year," said Craig Stevens, president of Solarbuzz.

Worse yet is Solarbuzz's prediction that in 2012 Chinese manufacturers are planning to increase production by another 50 percent over 2011, while end-market demand will only increase by 25 percent, further eroding prices and inflating inventories. In its worst-case scenario, manufacturers who refuse to cut back production will cause inventories to soar to 22 GWatt by the end of 2012, instead of cutting back production by 11 GWatt which would be necessary in order to stabilize inventories, according to Solarbuzz.

if china will over produce after some time if the sale is not possible then they also need to wind up.so after some time there will be a balance maintained to meet the supply demand positon.Impotant to see is how to increase the usage of these at each and every place.if at all 25 watts can be produced in one square foot area then many applications can be brought in.

I think this is a game of playing with the profits only, the companies should look towards environment benefits as well, as the entire world is looking for an alternative energy source and the over supplies of solar cells is resulting, that should increase the usage of the solar cells and more solar farms should come up. If the companies reduce the price of the solar cells, this is surely going happen.

I am not sure if companies are so generous that they will reduce the prices for environment benefit sake. Most of the companies are in this business just to make profit. May be government can give some tax breaks to these companies so that they can pass on that benefit to the end customer.

The price can not be reduced lesser than a certain point as long as it is operated by the private industries. Rather the governments should take initiative to give benefits to the individual customers who use the solar energy.

If you look at it from a value of inventory standpoint, the inventory growth is not as astounding as it first seems. At a $1.00/watt, that is only $20billion in inventory at the end of 2012 which is not that far from where it was at some point this year.

And realistically this could be considered good news for Solar Energy production, just not good news for Solar Panel makers. Does anyone buying a PC care (other than positive) when DRAM prices crash? ... nope.

What business model/strategy Chinese manufacturer are using. It looks like a gamble where the stakes are already high but people keep playing until someone drops out. I am sure Chinese company can not keep pushing the price lower as this will hurt them the same.

Is there a good ecosystem for the solar power generation? The price of solar panel is relatively high so the power generated is expensive. No single person would like to pay the bill. I'm wonder if there is another way out beside Government subsidy.

Crude - that's the word for the way production is regulated. We have a factory full of 16-bit analog, u-sec timed controllers, finely tuned processes - and a production schedule that a blindfold gorilla could do better. What are all those smart sales, marketing, and finance people doing?
I admit production lines are like supertankers, not very manoeverable, so its sometimes better to keep them clean and running than to stop and foul up the process. A bit like steelmaking?

Overproduction should have been obvious with the rush to get production on line a couple of years ago when it seemed like everyone wanted in on the action. Now that they have it, they're looking for a way out. But then maybe the overproduction and resulting drop in prices will stimulate some more growth in installations. The industry is far from mature at this point, so we should expect to see some ups and downs.

Indirectly this overproduction and the resulting lower prices will pull more customers to the Solar option. This will result in a permanent increase in the demand in the long run. So in my opinion there is no reason for the manufacturers to panic .

could the low prices be due to dumping by the state-funded Chinese vendors to drive out the VC-funded companies? (such things have happened in the past with memories for example.) Consumers may benefit short term from the lower price, but the prices will go up once the competition is gone. And consumers lose even more longer term as there is no competition to push technology improvements for a competitive edge.

Definitely! I used to work for a PV manufacture and I raised the point at an all hands engineering meeting that our competition was not any one specific company, it was China, more specifically the Bank of China. This was 1.5 years ago and the response I got was a blank look and a retort that it was an unsustainable business model. I replied that it doesn't have to be sustainable, just last long enough to drive the non-subsidized competition into bankruptcy. Again the blank stare and a change of subject. I bailed from that company! People need to understand the rules of the game as they are, not as they wish them to be. Free market in a global environment is wishful/magical thinking. Need to adapt to the current paradigm of a fusion of state sponsored "free market" or perish when your industry comes into the cross hairs. Good luck to those that remain!

The first crunch comes when oversupply forces price drops, which is what we are seeing here. The second one comes when all of the low-hanging fruit is taken in terms of installations. Remember that these things have twenty years or so of (admittedly declining) production. Unless there are significant technology breakthroughs that can increase that obsolescence we won't be seeing the first replacements for a decade or more.
Larry M.

I feel this is temporary phenomenon. After Nuclear crisis in Japan demand for renewable energy has gone up. Even countries like France and Germany have decided to move away from nuclear energy. Ultimately this will lead to huge demand for solar modules.